Business and Economics

States Asking Congress to Extend Mortgage Debt Relief Act

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December 20, 2013 — By Jerry Howard

Indiana is joining most of the nation in asking the federal government to keep a law in place.

Today, Indiana Attorney General Greg Zoeller says he joined 41 other attorneys general to ask Congress to extend tax relief for distressed homeowners.  They want Congress to extend the federal Mortgage Debt Relief Act which is set to end December 31, after taking effect in 2007.

Under the act, mortgage debt that is waived as money not paid by a borrower after a foreclosure or short sale or through a loan modification may be excluded from a taxpayer’s calculation of taxable income.  Otherwise, the unpaid balance is considered a monetary amount that was given, in debt relief, to the borrower, and it is treated as income, taxable by the Internal Revenue Service.  The act’s exclusion of that money from taxable income applies to mortgage debt forgiven only on primary residences, not second homes.

Zoeller wants the law to stay in place for now, “We believe if Congress does not extend this critical tax exclusion into next year, struggling homeowners and the slowing improving housing market will take a setback.  Failure to act means Hoosier homeowners who have received mortgage debt relief could be hit with a tax bill they simply can’t afford.”

Though an extension for 2014 is included in the proposed Mortgage Forgiveness Tax Relief Act, that act is sitting in committee, while the Ryan-Murray federal budget proposal that’s set to become law does not include the exemption provision.

Zoeller and 41 other attorneys general worked with Congress a year ago to extend the law into 2013.  He says that the housing market, has shown gradual improvement this year, yet its recovery remains fragile.

 

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